ICT Infrastructure
Fonterra shareholders have made a decision to implement their own rural broadband network rather than rely upon business cases and/or political processes to deliver a public, universal infrastructure sufficient to meet the needs of the company's applications. This decision indicates that the company sees sufficient private benefit related specifically to Fonterra information exchange to justify the investment. These benefits go beyond simply the connectivity provided by a broadband network. Security of data, and a universal network that links all Fonterra suppliers at the same time, no matter how remote their location, are primary motivators for this decision. Reliance on the provision of public services would not easily have allowed these objectives to be achieved (although Fonterra is developing the network in conjunction with a major infrastructure provider).
It is noted, however, that Fonterra's push to develop the network is driven by its own and farmer demand for applications that already exist, and the business case is justified by use of these existing applications plus applications already in development to share information between individual farmers and between farmers and Fonterra. The network is not relying upon the faith that once a network is implemented, new demand and new applications will emerge (the so-called "build it and they will come" justification that underpinned many network constructions in the period leading up to the crash of 2001, and resulted in the bankruptcy of many network providers). With over 50 percent of farms regularly accessing Fencepost.com, demand is already established, whilst ownership of the network provides the necessary incentives for individual farmers to use and encourage use of the Fonterra network rather than use of competing infrastructure providers' networks. Hence, the Fonterra network stands a greater chance of financial success than networks built upon speculative demand.
Fonterra's investment also indicates that where an overwhelmingly positive benefit exists from an application within a specific sector, if the ability exists to co-ordinate investment, that sector will itself move to implement the infrastructure necessary to support that application. Public intervention (e.g. by Government) is unnecessary. Undoubtedly, the organisation of dairy farmers into the national Fonterra co-operative has facilitated the deployment of a national infrastructure, as the common sphere of influence of sufficient scale to support the investment, already existed. The single, shared focus upon the dairy industry has enabled agreement to invest to be reached sooner than if demands for the network capital had to be prioritised amongst many competing interests, as would be the case if government was to consider providing such a service.
That similar networks have not been established for other rural sectors (e.g. the meat and wool sectors) may indicate that applications to justify investment in such networks do not as yet exist. If they did, then one would expect to see co-operative collectives either using their existing collective mechanisms to initiate the same sorts of projects as Fonterra's, or co-operatives emerging specifically to implement infrastructure projects (e.g. the Southland co-operative that formed prior to Project Probe's implementation) (although it is noted that smaller co-operatives may of necessity have smaller demand than national co-operatives such as Fonterra).
The reality is that Fonterra has invested in its own network in a country where already, over 85 percent of the population already has access to broadband infrastructure. In the United States, this figure stands at around 65 percent (Howell, 2003). Additional New Zealand broadband investment is addressing increasingly marginal and costly-to-service populations. The business sectors servicing these populations are in the best position to assess the application-based business case for investing. Fonterra shows that it is access to applications that ultimately determines investment justification. Hence, government intervention in rural broadband networks and perceived "digital divides of access" may be best achieved not by building infrastructure, but by encouraging the development of industry-specific applications that will underpin profitable business cases.
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